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Questions › UGC-NET › UGC-NET 2023 › Q85
2 marksInternational Economics › Balance of payments and exchange rates › Foreign exchange markets and instrumentsHardabout 2 min

UGC-NET 2023 Question 85: Balance of payments and exchange rates

The Central Bank maintains a fixed exchange rate (units of domestic currency per unit of foreign currency). The domestic currency is currently overvalued. Put the following in correct order describing the intervention required to maintain parity.

(A) The demand for foreign currency exceeds its supply.

(B) The exchange rate is lower than the market-clearing exchange rate.

(C) The gap between supply and demand for foreign currency is equalized.

(D) The Central Bank's stock of foreign currency is depleted.

(E) The Central Bank sells foreign currency from its stock of reserves.

Choose the correct answer from the options given below:

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Answer and worked solution

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Balance of payments and exchange rates has come up 120 times in 7 exams since 2007.

What this question tests

This question is on Foreign exchange markets and instruments, part of Balance of payments and exchange rates in International Economics.

Where currencies are traded and the instruments used to hedge exchange risk.

TestStop has 8 past-paper questions on this subtopic.

Take this paper as a timed mockMore on Foreign exchange markets and instruments

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Question from the UGC-NET 2023 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.